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Lease or Buy: How Does Rapidly Evolving Car Technology Change the Equation?

August 25, 2009

By Terry Smiljanich:

Anyone who has considered getting a new car has faced the question: is it better to buy the new car or to lease it? With all of the talk lately about hybrid cars and all-electric cars, and with all of the new computerized gadgetry showing up in new cars, the issue of buying versus leasing may have taken on a new wrinkle.

When you buy a car, you are purchasing a depreciating asset. As the years go by, your car has less and less value, but it retains some intrinsic value nonetheless and can serve as a trade-in when you finally give up on it.

When you lease a car, you are in effect “renting” the use of a vehicle that you do not own. When the lease runs out, you own nothing but can usually buy the leased car for a set sum based on its projected value.

Advantages and Disadvantages of Buying

If you choose to buy your new car, the advantages are:

pride of ownership – it’s all yours to customize or accessorize as you please;

you have no mileage limits – take it on your next vacation if you want; and

As everyone knows, however, car technology seems to be evolving at an ever increasing pace. Practically every manufacturer has, or is coming out with, a hybrid gas/electric car that gets better mileage. Just a few months ago, $4/gallon gasoline convinced some people that oil won’t be around forever and that every time the Middle East hiccups, the West catches a cold. Consumer demand for hybrid cars has not been high, but as the technology gets better demand will certainly go up. Manufacturers seem to be banking on it.

In addition, all-electric cars are getting better. Currently, they are still too expensive and underpowered and not much liked by consumers, but does anyone doubt that the battery technology will vastly improve? When gas is expensive again, and an electric car is getting hundreds of miles on an overnight charge, consumer demand will inevitably go up.

Also, if you’ve looked at new cars recently you’ve no doubt been impressed with the latest automotive technological and safety innovations. Navigation aids, side and backup cameras, increasing audio options, and other bells-and-whistles give new cars the feeling of space capsules, much to the enjoyment of many buyers trading in their old cars.

Which brings us to a new observation. The difference between a 1995 and a 2000 car were not that great. The body styles changed, but the cars were still very similar. Between 2000 and 2005, the pace of change increased, but cars still retained much of their basic mileage characteristics and functions.

Can the same be said about 2010 cars and 2015 cars? If batteries get more efficient and cheap, if computer miniaturization continues apace, and if the price of gasoline continues to creep upward, what looks good for you today may change drastically by then. Today’s gas guzzlers might look and sell like white elephants in the near future.

What to Do

One of the most decisive factors in the decision to buy versus lease is whether you will want a new car in four or five years or will want to keep your current car for several years after that. The rapidly evolving automotive landscape may be something you want to consider in making your decision. Buy and lease options have financial differences and also depend on your attitude toward cars in general, but you may also want to try and look ahead and consider whether 2015 cars might be very, very different than today’s models. Of course, you will need to polish up your crystal ball, but deciding to buy or lease has always required some of that.

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